Ttrade negotiations between countries or trading blocks are only slightly less complicated than border negotiations with neighbors.
The European Union (EU) is an important trading partner of India. In 2019-20, Indian exports and imports to the EU were $ 53.8 billion and $ 51.2 billion, respectively, making India a net exporter.
India and the EU started their negotiations on a free trade agreement (FTA) in 2007. The trade agreement was ambitious because it proposed to go beyond just goods to trade in services, investment and economic cooperation – in the form of large-scale trade and investment. Convention (BTIA). From 2007 to 2013, there were 16 rounds of formal talks, but no agreement could be reached due to major differences on several issues. These included the scope of market access, tariffs on automobiles and auto parts, dairy products, alcoholic beverages, including wines and spirits, and harmonization of regulations on the protection of consumers. data and cross-border data flow. Another sticking point was India’s demand for a liberal visa regime and free movement of professionals from India to the EU.
On May 8, 2021, the EU and India agreed to resume stalled trade negotiations. In addition to the issues discussed in previous rounds, it is estimated that this new round will also include discussions on public procurement policies for goods and services, regulations on intellectual property rights and a roadmap to address sustainable development issues. Labor rights can also figure in negotiations.
Agriculture should also feature prominently in the discussions. We are discussing some of the contentious issues regarding agriculture and allied sectors in these negotiations.
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The dairy question
Since the EU has an interest in exporting and has a surplus of dairy products, it wants to include it in the FTA. The EU would look to India’s rapidly expanding middle class (this may no longer be so true due to the economic downturn since 2016-17 and the Covid-19 pandemic) and the possibility of exporting higher value-added dairy products such as cheese, yogurt, ice cream, etc.
The scenario is quite different in India.
While India’s dairy sector is one of the largest in the world, it is dominated by small, marginal farmers who raise only a few buffaloes and cows. In 2017-2018, milk production was only about 1,200 kg per cow per year in India, or about 50% of the world average (Report on Policies and Action Plan for Safe Agriculture and sustainable: submitted to the Senior Scientific Advisor of the Government of India, 2019). In 2019, the average milk production per cow per year in the EU was 7,346 per kg. Yet the sector provides a livelihood for more than seven crores of people. So, from this point of view, the sector is sensitive. In addition, due to India’s large consumer base, interest in exporting is limited.
Currently, the import of powdered milk carries a basic tariff of 60 percent. The import duty on cheese, yogurt, ice cream and whey is 40 percent while buttermilk is subject to a 30 percent duty. The EU wants a reduction in tariffs on various dairy products.
Indeed, it can be recalled that recently, during the negotiations of the Regional Comprehensive Economic Partnership (RCEP) also, the dairy sector was one of the main sticking points. The impetus for opening up the dairy sector came from New Zealand, which exports about 93 percent of its annual milk production in the form of various dairy products.
Finally, India withdrew from RCEP at the last moment.
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The second subject of interest in the EU-India trade negotiations would be alcoholic beverages. The EU’s earlier interest in exporting Scotch whiskey at reduced tariffs no longer exists due to Brexit, but interest in exporting a wide variety of wines and spirits persists.
The EU is reportedly monitoring the rapidly growing Indian market for its alcoholic beverages due to the increasing consumption of alcohol in India. Alcoholic beverages were previously subject to a 150 percent duty. The 2021-2022 Union budget reduced the base tariff to 50 percent, but 100 percent of the Agricultural Infrastructure and Development Tax (AIDC) was imposed. This may have been done in anticipation of trade talks with the UK in the post-Brexit scenario. Thus, the only space available for EU negotiators would be to reduce the base tariff by 50 percent.
The Confederation of Indian Alcoholic Beverage Companies (CIABC) will oppose any serious reduction in tariffs, but in order to gain space for negotiation India may well agree to some reduction on the more expensive categories of wines and spirits. Since alcohol is not covered by the GST regime, state governments impose high excise taxes as it is a significant source of revenue, especially due to the impact of Covid-19 on other sources of income. EU negotiators would like alcoholic beverages to be included in the GST, but this may not be possible in the short term due to GST revenues far below estimates.
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India needs trade advisers
While tariff barriers are generalized, there are several non-tariff barriers on the agricultural sector in itself in the form of sanitary and phytosanitary standards. As a member of the World Trade Organization (WTO), most Indian exporters follow the Codex standard for export products. However, in the past there have been instances where the EU has imposed standards, stricter than those of the WTO, which have hurt India’s agricultural exports. These issues need to be addressed in the FTA.
Last but not least, there is also an administrative problem. In the past, before entering into negotiations, the Ministry of Commerce consulted with relevant ministries on tariffs and liberalization of the import regime, but most ministries do not have much expertise and memory. long term on international trade, so they oppose any proposal to reduce tariffs. . Consultation with states on tariffs on agricultural products is also not exhaustive. In any case, states have even less expertise in global trade negotiations.
Since farmers are directly affected by tariff decisions, there is a need for states to seek advice from experts outside of government. To this end, the development of academic institutions and think tanks specializing in international trade issues seems imperative. Union government ministries could also use the side entry route to appoint professionals familiar with different areas of trade negotiations such as investment, non-tariff barriers and digital technologies.
Finally, trade negotiators must be prepared for much longer stays than current Indian government delegation rules allow.
Siraj Hussain is Visiting Principal Investigator, ICRIER. He retired as Union Agriculture Secretary. Jayant Dasgupta was the Indian Ambassador to the WTO. Opinions are personal.
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